We are at the beginning of the new institutional cycle of the European Union. The recently re-elected President of the European Commission has reaffirmed her commitment to the implementation of the European Green Deal (EGD). Although much of the relevant implementing legislation was completed during the previous mandate – in the midst of a ‘perfect storm’ of multiple crises – it is clear that the hardest part is still ahead of us.

Perhaps one of the biggest upcoming challenges for the EGD is the launch of the new Emissions Trading System (ETS 2) for buildings and road transport, in 2027. These sectors are currently (2022) responsible for about 35% of greenhouse gas emissions in the EU-27 and 27% in Greece. On the path towards climate neutrality, there is a need to accelerate their decoupling from fossil fuels. As in the case of the ‘traditional’ ETS, which has been in operation since 2005 and concerns the electricity production and industry sectors, ETS 2 serves this objective through carbon pricing. On a practical level, the implementation of ETS 2 means that as long as citizens and businesses still rely on fossil fuels for heating and transport, their bills will inflate even further compared to current levels from 2027 onwards. However, the most critical issues concerning the future implementation of ETS 2 will be decided in 2025.

Recognising the social impact of the ETS 2, the European Union decided to create a special fund, with the distinctive name Social Climate Fund (SCF) to support the most vulnerable citizens of the Member States who are expected to be most affected in the decarbonisation process of these two sectors. Admittedly, the size of the SCF (€86.7 billion for the seven-year period 2026-2032, €4.8 billion for Greece) is too small to fully address the challenge of reducing energy and transport poverty. However, Member States already have at their disposal the revenues from the existing ETS which – according to the Directive – can be used directly for ‘greening’ transport and for projects to reduce the carbon footprint of buildings. In addition, from 2027 Member States will have at their disposal the revenues from the auctioning of allowances under the new ETS 2, which will obviously increase as the price of allowances rises on this new emissions trading system. Member States will therefore have resources available from a variety of sources to meet the challenge.

Under the SCF Regulation, Member States must submit to the European Commission the so-called ‘Social Climate Plans’ (SCPs) by June 2025. These will detail how countries will use available resources to help vulnerable people cope more effectively with the upcoming increase in fossil fuel prices for buildings and road transport.

As the first tranche of the SCF will be disbursed in 2026, the timeframe for shaping the Social Climate Plans is tight. But this does not mean that they should be approached as a rushed computational exercise or as yet another deliverable from member states to the EU. After all, according to the relevant SCF Regulation, extensive consultation with social partners should play a key role in the formulation of the Social Climate Plans. The Ministry of Environment started this process in early December 2024 with a meeting to which a large number of stakeholders were invited, but unfortunately very few attended – including The Green Tank and other environmental NGOs. In order to enhance participation, it is therefore essential to have a much more dynamic outreach to citizens regarding the significance of the broader developments around the ETS 2 and the decisions that will be taken by June 2025 for the most vulnerable groups of Greek society.

As for the content of the plans, the first key parameter relates to the very definition of the problem itself, specifically which categories of citizens will be the beneficiaries of the resources and what will be the expected impact on them from the operation of the ETS 2. The identification of these parameters will influence the type of measures and policies to be implemented and the amount of resources required to adequately address the challenge and lead to a significant improvement in the quality of life for citizens.

A fundamental question concerns the distinction in the use of resources between direct financial support to vulnerable citizens and measures that will tackle the problem at its root by permanently reducing households’ dependence on fossil fuels. The Social Climate Fund Regulation sets a ceiling on direct aid of 37% of the total SCF. However, there is no such ceiling on the use of the much larger amount of the ETS (existing and new). As a result, since the start of the 4th phase of the ETS to date (period 2021-2024) Greece has allocated more than 68% of its resources (€3.35 billion) into the Energy Transition Fund which has done little to contribute to a permanent decoupling from fossil fuels. On the contrary, since its introduction at the beginning of the major energy crisis in 2021 to date, the resources of the Energy Transition Fund have been used to reduce energy bills, which periodically inflate by rising prices and/or the use of fossil fuels. In this sense, the Energy Transition Fund indirectly subsidises the consumption of fossil fuels, without, however, shielding households from the next such price crisis. This policy may be easy to implement and popular, but if it continues to be used to address the impact of rising energy prices in buildings and road transport due to the operation of ETS 2, it must be considered certain that the available resources will be quickly exhausted, leaving citizens exposed to the cost of carbon.

Therefore, every possible effort must be made to ensure that the finite resources of the SCF and the ETS 2 are directed where they will really ‘pay off’, and not towards fossil fuel subsidies. But there too the questions are complex. For example, in buildings, how will resources be allocated between the necessary energy upgrades and those that need to boost the electrification of heating and the self-production of electricity from renewable energy sources, either by individual households or by energy communities? In road transport, in addition to promoting electrification, the development of which faces a number of challenges, will resources be directed towards sustainable mobility measures or the development of much more efficient and clean public transport? Will emphasis be placed on measures such as reducing speed limits, or promoting car-pooling and remote working?

The development of the Social Climate Plans is a great opportunity to improve the quality of life of citizens by combining the reduction of energy bills with climate protection. A prerequisite for seizing this opportunity is to provide evidence-based answers to the above difficult questions by June 2025, following consultation and real cooperation with social partners. Otherwise, any policies decided will risk failure as they will be addressed to an uninformed and disengaged society, ultimately leading to widening social inequalities, especially energy and transport poverty.

*This opinion article was initially published in energypress.gr in Greek, on 22 December 2024.